How Nonsensical is Year End Tax Planning

View quick summary A salaried person gets a fair idea about what his annual income would be at the beginning of the financial year. Still, most employees do not take their Tax Declaration to the employer seriously. They wait for the year-end to plan their taxes. One reason why all of us work hard through the year is to make money. Then, does it make sense to procrastinate preparation for the optimization of whatever we earn?
Why Year End Tax Planning is Nonsensical
Crucial financial decisions taken in a rush spell trouble. Actually, there is nothing called “Year End Tax Planning”. Planning for anything is done at the beginning of the year. The common mistakes that highlight the nonsensicality of planning your taxes during the 11th hour are:
Investing without a goal: When you plan to travel from one place to another, first you fix the date of journey. Then, you choose an appropriate mode of transport, based on the time it will take and the price you are willing to pay. Tax planning is no different. You need to set your financial goals and then assess the investment options that match your needs.
Not considering available options: Taxpayers, during the last minute tax saving rush, often overlook the favorable choices before them. ELSS funds are a good way to save tax for someone who has a high risk appetite. However, if the taxpayer has woken up late and there is not enough time, he may put his money in a low-yielding NSC or a bank fixed deposit. Senior citizens may be lured to invest in other options even though the Senior Citizen’s Savings Scheme gives them the most suitable tax benefits under Section 80C.
Falling for the insurance lure: The last quarter of the Financial Year is the busiest time for the insurance industry. Insurance agents are known for using the panic among taxpayers to push them policies that get higher commissions. Taxpayers, in the hurry to exhaust their Section 80C deduction limit of Rs. 1,00,000, don’t even look at the basic features of an insurance plan, leave alone the fine print. Moreover, agents sweet-talk you into buying a ULIP or an insurance policy that you may not even need.
Not knowing tax rules: One of the major reasons for inefficient tax planning is the unawareness around the provisions in law that you can use to your benefit. Salaried individuals often mistake the proof submission deadline set by the employer as the last bell. In a hurry to avoid deduction of extra tax, they take random measures, without evaluating the effect of their actions on their finances. All you need to know is that the last date for making investment decisions is March 31. While this is not the best time to make investments, you should rather take a rational decision because the law allows you to claim a refund of additional TDS deducted while filing the income tax return.
Not taking tax changes into account: Income tax laws are amended regularly, with every budget adding or withdrawing some benefits. Taxpayers who attend to their tax scenarios in the last 2-3 weeks of the year often miss these changes, and blindly follow the investment pattern they had been practicing in the previous years. For instance, the Direct Tax Code proposes that insurance policies with a risk cover of less than 20 times the annual premium will not be eligible for tax deduction. However, people continue to buy endowment plans and ULIPs.
At Year End, most employees focus on immediate goals like submitting investment proofs on time. As a result, they end up sacrificing returns or safety, or both, in a hurry. Hence, it becomes essential that you start planning your taxes in April, and create a full-fledged action plan on where to invest, what to buy and which claims to declare. TaxOptimizer service caters to this need by offering a dedicated Chartered Account as part of an annual subscription that includes optimization of your salary package, ITR filing and premium support. For details, write to tax.optimizer@taxspanner.com